2006 (12) TMI 114 - HC - Income Tax

Disallowed on deduction u/s 80HHC - Not furnish Form No. 10CCAC along with return - N ature of sundry credit balances written back - Taxable under the head Income from business or Income from other sources - HELD THAT - There were credits appearing in the books on the basis of purchase of items from various suppliers and these suppliers were not paid. These unclaimed credit balances were brought to the profit and loss account and the same had emanated from trading transactions only. There is a finding given by the Tribunal that the said transaction is very much connected or closely linked with the assessee s business activities. The receipt had arisen only out of ordinary trading transaction and hence it was rightly assessed under the head Business . Therefore we are of the view that the reasons given by the Tribunal are based on valid materials and evidence and hence we do not find any error or legal infirmity in the order of the Tribunal so as to warrant interference. Thus we are of the view that the Tribunal is right in holding that the income should be assessed under the head Business and also on this basis the assessee is entitled to the benefit u/s 80HHC of the Act. Hence we answer the question of law in favour of the assessee and against the Revenue and accordingly the tax case is dismissed.

Summary

Issues:
Interpretation of deduction under section 80HHC for unclaimed balances written back in profit and loss account for assessment year 1993-94.

Analysis:
The case involved an appeal by the Revenue under section 260A of the Income-tax Act, 1961, regarding the entitlement of the assessee to deduction under section 80HHC for unclaimed balances written back in the profit and loss account for the assessment year 1993-94. The assessee, a firm engaged in shoe manufacturing and export sales, had filed a return of income admitting total income as nil, which was later assessed at Rs. 10,89,460. The Assessing Officer treated a sum of Rs. 9,59,197 as income under "Other sources," leading to a dispute. The Commissioner of Income-tax (Appeals) upheld the order, but the Income-tax Appellate Tribunal ruled in favor of the assessee, treating the income under the head "Business" and allowing the benefit under section 80HHC.

The Revenue argued that the Assessing Officer was correct in treating the amount as income under "Other sources" due to the lack of details on the nature of the sundry credit balances written back. On the other hand, the assessee contended that the balances were related to business income and expenditure, hence should be assessed under "Business." The court noted that the assessee had offered the amount as income, citing a precedent where a similar issue was deemed taxable income. The key question was whether the amount should be assessed under "Business" or "Other sources."

The court referenced the Tribunal's finding that the transaction was closely linked to the assessee's business activities, arising from ordinary trading transactions. The unclaimed credit balances were from trading transactions with unpaid suppliers, brought to the profit and loss account. Given the connection to business activities, the court upheld the Tribunal's decision to assess the amount under "Business." Consequently, the assessee was entitled to the benefit under section 80HHC. The court found no legal infirmity in the Tribunal's order and dismissed the tax case in favor of the assessee.